Economists cut Q3, Q4 forecasts, but keep 1.8% growth for year

Singapore

PRIVATE-SECTOR economists have trimmed their forecasts for the Singapore economy for the third and fourth quarters of this year, although their projections for gross domestic product (GDP) growth for the year remain intact at 1.8 per cent.

They have also pared back their growth forecast for next year from 2.1 per cent to 1.8 per cent, said the latest quarterly survey by the Monetary Authority of Singapore (MAS).

Economists The Business Times spoke to cited the slower Chinese economy, concerns over Brexit, potential rate hikes by the US Federal Reserve and the domestic property market as factors underpinning the gloomier outlook for next year.

The survey showed that respondents now expect the economy to expand 1.7 per cent in Q3, slightly lower than an earlier estimate of 1.8 per cent in June's survey; their projection for Q4's GDP growth has been scaled down from 1.7 per cent to 1.5 per cent.

Selena Ling, head of treasury research & strategy at OCBC Bank, said: "One contributing factor for the lower forecasts ... is the recent softness in China's economic indicators, which suggests deceleration is not done yet."

She added that any impact on tourist arrivals and the hotel industry from the Zika outbreak may be felt only from September.

Vishnu Varathan, head of economics and strategy at Mizuho Bank, said: "Collateral damage from Brexit to investment sentiments, due to investors holding back amid uncertainty, may dampen overall activity.

"At home, the lingering effects of a slower property market could also continue to drag."

The MAS's September survey was sent out on Aug 11 and received views from 22 respondents.

Full-year growth for this year is still expected to come in at 1.8 per cent, in line with the last survey in June; this is despite the less upbeat outlook for H2.

One likely reason for this is that the Singapore economy performed slightly better than anticipated in Q2; it expanded 2.1 per cent, above the median forecast of 2 per cent.

Last month, the government narrowed its estimate for full-year GDP growth to 1 to 2 per cent, from 1 to 3 per cent initially. This puts the 1.8 per cent figure on the higher end of that range.

Meanwhile, the new full-year median-growth projections translates to a better showing for the manufacturing sector. This segment of the economy is now expected to grow by 0.7 per cent, against the zero-growth projection offered in the June survey.

Wholesale and retail trade was also given a marginal upgrade, going from 2 per cent to 2.1 per cent.

Ms Ling noted that in manufacturing, the outlook for the broader sector remains tepid, even though the electronics purchasing managers' index (PMI) expanded in July.

"I am thus looking for a stabilisation, rather than strong recovery for manufacturing in H2," she said.

On the other hand, growth for the finance & insurance sector has been downgraded from 2.9 per cent to two per cent.

Other sectors expected to register weaker growth were construction (which is projected to go from 3.3 per cent to 3 per cent growth), and accommodation and food services (from 1.8 per cent to 1.4 per cent).

Prospects for the financial services sector are being weighed down by low interest rates, rising non-performing loans and tightening banking regulatory requirements as well as the cooling property market and soft global environment, said Mr Varathan.

Economists who spoke to BT said the more cautious outlook for next year arises from concerns that existing challenges and economic drag could spill over into next year.

Alvin Liew, senior economist at UOB, said: "The key concern is that the anaemic global trade and growth environment could persist and even worsen in 2017. I

"In addition, geopolitical concerns - especially from an uncertain US election this year - could have potential impact on Asia and Asian financial markets, particularly in the areas of trade, currency and geopolitics. Domestically, the issue of rising business costs also needs to be addressed."

On the inflation front, the median inflation forecast for this year dipped slightly to -0.5 per cent from the -0.4 per cent reported in the June survey.

Those polled said they expect core inflation, which strips out the costs of accommodation and private road transport, to clock one per cent this year, up from 0.8 per cent in the last survey.

ANZ economist Ng Weiwen said: "This reinforces our view that higher inflation is more like than deflation for Singapore. "For Singapore, low growth is not necessarily deflationary," he added, citing as factors firm wage growth despite the softer labour market, the fading impact of the disinflationary effects of oil, budgetary and other one-off measures.

Meanwhile, unemployment is now expected to edge up to 2.2 per cent at year-end, up from 2.1 per cent in June's survey.